Portfolio

Sunday, July 31, 2016

Another dull week in the markets, and the DNC in Philadelphia. Both were so boring it put Bill Clinton to sleep in one of Hilary's speeches.

Every was waiting to see what Janet Yellen would say Wednesday. The market didn't expect a rate hike while I was a bit more skeptical. Alas there was no rate hike, but she did include some stronger than normal language. "Near-term risks to the economic outlook have diminished". That was the exact phrase used. Also they noted economic activity has continued to expand moderately. I'm not sure what they are waiting for, and the 1.2% rise in GDP reported Friday definitely makes the case stronger for a hike.

Now GDP will be revised a couple more times over the next few months, but it's still growing. I think what concerns the Fed is the lower growth rates we've experienced. A lot of that can be attributed to a lack of confidence this year. Not only was business dealing with Brexit for so long, but also the fact that this is an election year and no one really wants to make huge investments without knowing who will be in charge come November. Business confidence was actually cited in the GDP release, and it makes a showing in durable goods orders posted this week.

Durable goods came in at with an extremely low -4%. Now people are quick to point out that excluding transportation the number was only down -0.5%. But let's not get to worried. I think the Fed said it best that our economy is still expanding moderately.

Internationally Japan has instituted quite a large economic stimulus plan this week at $267 billion. Then the BOJ decided to not really change anything in it's current monetary policy. The BOJ response sent the yen soaring against the Euro and US Dollar. The current plan is to continue buying government debt, corporate debt, -0.1% interest rates, but ETF equity buying would be increased quite a bit.

It was a big week for our portfolio with 10 companies reporting. I detailed most of them in a previous post this week(besides BUD). I'll briefly summarize each again.

Facebook(FB) is one of the most widely watched stocks out there, and I'm glad we own it here. The company just continues to blow it out of the park with earnings and revenue increase. They are almost a true money making machine. The company reported earnings up 184% and revenues increased 63%. Absolutely solid numbers.The stock is still by no means cheap, and I've been reluctant to add. Still the company is finding it's user base very receptive to advertising, and plenty of business willing to pay up for the privilege.

Internationally we had our alcoholic beverage makers both report earnings. I'll detail BUD a bit more as they reported Friday. The company has been in the news a lot as their merger with SAB Miller appears to be hitting a few snags. The company had to up it's offer to 45GPB as a result of the currency falling in value. It seems there is some dissatisfaction among some shareholders. I'm willing to think this will get resolved especially since regulatory approval was given in many countries already. But you never know so stay tuned. The company had pretty good results overall. Q2 EPS came in at $0.09(basic), and normalized earnings at $1.06. Now there is a lot of accounting going on with the merger so this is not a good quarter for earnings as proxy for business strength. Revenues were strong up 4% to $11.05 billion. The company is seeing nice growth in it's biggest brands, although they are feeling the heat just a bit in their craft brands with increased competition.

Diageo(DEO) reported a quarter with lower sales and earnings, but the company was able to showcase why it's still ownable. They found ways to increase cash flow by $134 million, or in other words they became more efficient. That's how a good company works.

Wabtech results were definitely less than stellar, but the stock was able to recoup it's losses after the announcement which is a good sign so far. The new guidance of $4.00-$4.20 is upsetting, but the company is doing a great job maintaining margins, and keeping costs in check.

Three of our tobacco holdings reported - MO, RAI, & VGR. The big surprise came when RAI announced that industry volumes have dropped 4%, but looking a little deeper some of it was due to inventory fluctuations. Still the downtrend persists, and its apparent they are all looking to reduced risk products to really start filling the gap. Although they are all in hover mode as they await new regulations from the FDA. The group as a whole was down after earnings, but has rebounded some since. I think it's time for a breather with this group as it's been one of the years best performers.

Two of our payment processors reported as GPN, and MA both releases results that were good. GPN gave guidance that I think is throwing some people off right now. It seems earning growth isn't what some were expecting. I'm willing to give the company time to digest it's Heartland acquisition as it's a pretty sizable undertaking. MA once again showed why it's one of the best in the space. Transaction and volume growth continues to be strong across the board. I really like this pick for the long term.

Our atmospheric gas stock Praxair is another "boring" pick that reported good results. Overall the slower global economy is pinching results. Remember that even though things aren't great here, they are even worse in other parts of the world. I think their results reflect the struggles overseas, and the energy market is still a drag as more projects come offline. Earnings guidance was re-affirmed and I'm confident they'll meet it.

The market is still trading near highs. The Nasdaq had it's 5th week in a row up. Big earnings from AAPL, FB, and GOOGL certainly help. I'd like to see it reach new highs and confirm everything we've seen in the S&P 500. That's all for now. Hope the weekend was fun!

Saturday, July 30, 2016

Yesterday we received Q2 GDP estimates and it wasn't so great. GDP grew by 1.2% compared to last year. The report cited concerns' for lack of business spending, and confidence in the global economy. I think some of that is related to Brexit, but it's true American manufacturers are still feeling the heat from a strong dollar which keeps staying strong. With other countries still looking to weaken their currency, and some already at negative rates I think the strong dollar can continue for quite awhile. An interest rate hike by the Federal Reserve will only add to the problems. I'll have the Weekly Review up soon.

Tuesday, July 26, 2016

Yesterday it was confirmed that Verizon will be buying Yahoo's core business for approximately $4.8 billion. Crazy to think the company was worth $125 billion at one time. The internet is a tough environment to compete in. It is the new rags to riches wonderland, and also the new graveyard for former titans.

I can recall following the ticker when I first became interested in stocks, and being amazed at how fast the price was rising(1997-2000). My first email address was through Yahoo and I still use it this day. As a matter of fact I still love using their Yahoo Finance page, although I find the new layout lacking and bothersome. I think this just serves as another reminder of how seemingly good ideas, and hot companies don't always make money for shareholders. I have that concern for our Facebook shares as it's a risk I'm well aware of.

Shareholders of Yahoo have not done as well as they should have. The chart below starts in 1997. Long term holders have still made money, although not as much as they could have. Compared to the S&P 500 Total Return Index a lot of money was left on the table. Especially since 2009.

Friday, July 22, 2016

This week we had a lot of companies report earnings and I decided to just hold off and put them all in one post til this morning. We also had a FOMC rate decision which came in at no change. I was a little surprised by the stronger language, and the subsequent decision to hold off. Either way each ensuing meeting raises the stakes for a rate hike. Here are the earnings reports for the week so far and my thoughts.

On Monday Wabtech(WAB) reported Q2 EPS of $1.00 on revenues $724 million. Both represented decreases from the year before, and missed estimates. Also management didn't sound very upbeat about revenues as they expect a 10% decline for 2016 compared to 2015. Additionally new EPS guidance for 2016 comes in at $4.00-4.20/share vs $4.30-$4.50 The shares initially tanked Monday getting all the way down to $65.54, but rebounded Tuesday. It's not easy watching this one, but the company has done a great job at maintaining margins so far. The company is trading at a pretty decent valuation, and still looks somewhat oversold so if you've been watching for a long term entry maybe now is a time to consider whether a position is appropriate. Here is the CEO statement.Raymond T. Betler, Wabtec’s president and chief executive officer, said: “Our Transit business is performing well, with revenue growth, improved profitability and a strong backlog. Our Freight business, however, continues to be affected by overall rail industry conditions and the sluggish global economy. In this environment we are focused on controlling what we can by aggressively reducing costs, generating cash and investing in our growth opportunities, including acquisitions. As demonstrated by our first half operating margin of 18.4 percent and cash from operations at 14 percent of revenues, we are managing the business well in these market conditions.”

On Tuesday Reynolds America(RAI) reported Q2 EPS of $0.56 on revenues of $3.2 billion. The company announced another 9.5% dividend raise to $0.46 making that the second this year. Personally I would have liked for them to wait until next year, but I can't complain. The new yield works out to 3.7%. The shares have really taken it on the chin since their announcement, but I'm adding shares today. Here is the CEO statement.

“Strong market share gains across our operating companies’ premium cigarette portfolio, in combination with higher pricing in both cigarettes and moist snuff, drove excellent operating performance in the second quarter,” said Susan M. Cameron, president and chief executive officer of RAI. “The achievements by our operating companies through the first half of 2016 have significantly strengthened Reynolds American, and I’m pleased to announce further steps supporting our commitment to returning value to RAI’s shareholders.”

Now onto Altria. MO reported Q2 EPS of $0.81 on revenues of $6.5 billion. The company increased it's guidance for the year and now expects EPS to come in between $3.01-3.07 compared to 2015's $2.80. I added shares of MO today. Here is the CEO statement.

“Altria had strong 2016 second-quarter and first-half results, delivering excellent earnings per share growth for both periods despite comparisons to very strong 2015 results,” said Marty Barrington, Altria’s Chairman, Chief Executive Officer and President. “Our core tobacco companies performed extremely well behind solid performance from their leading premium brands. And we continued to reward our shareholders, including paying out more than $2.2 billion in dividends in the first six months.

Vector Group reported Q2 EPS of $.20 on revenues of $438 million. The company did not provide any updates to guidance,although they did announce revisions to results for Jan-June 2015. The company is not very exciting, but their real estate operations continue to provide increased revenue growth. I still like this as a dividend payer, but FB like growth this is not!
Diageo PLC(DEO) reported preliminary results for their fiscal year ended June 30 with EPS at 89.1 pence on sales of 10.4 billion(GBP). EPS and sales were down 6% and 3% respectively, but free cash flow was up 134 million compared to last year. The company announced a 5% dividend increase for the final payment bringing the full year dividend to 59.2 pence, which is an increase of 5% over 2015's. Solid operating performance here, however I'd like to see revenues coming in a little stronger. This is a name I added at the height of Brexit fears and it looks like a savvy buy. Shares have traded up to $117 today.

Global Payments Network(GPN) reported fiscal year end EPS of $0.26 on revenues of $747 million. For the year revenues were $2.9 billion and EPS total $2.04. I'm a little disappointed on operating margin coming down to 14.7%, and guidance for 2017 puts it at 15.4%. Fiscal 2017 EPS is forecast at $3.50-$3.60. The shares are trading heavy and maybe I'll see a price where I can add. I have very few concerns about the long term viability about this company. Here is the CEO statement.

“Fiscal 2016 was a transformative year for Global Payments. We are delighted with our performance as results exceeded our expectations, reflecting continued strong execution throughout the year,” said Jeff Sloan, Chief Executive Officer. “Our partnership with Heartland Payments is off to a strong start. Our combined senior management team is in place, we are executing initiatives to drive incremental revenue enhancements and we are realizing the integration synergies we previously outlined. We expect continued positive momentum in 2017.”

MasterCard(MA) reported Q2 EPS of $0.89 on revenues of $983 million. The company continues to see good transaction processing growth as it increased 14% to 13.7 billion transactions. The shares are trading up abut 1% today. Overall a decent quarter from a solid company. Here is the CEO statement.

“We carried solid momentum into the second quarter, delivering 14 percent revenue growth for the first half of the year, after adjusting for currency,” said Ajay Banga, president and CEO, MasterCard. “With last week’s VocaLink announcement, we will expand our capabilities beyond core card-based solutions into a broader set of transactions and payments. The collective technology and experience will provide consumers, businesses and governments more choice and value in how they pay and are paid.”

Praxair(PX) reported Q2 EPS of $1.39 on revenues of 2.6 billion. The company re-stated guidance for 2016 at $5.40-$5.55. That gives the company a P/E right around 20 so it's fairly valued here. Honestly just another good quarter here from what I see. Currency is still having some affects, but the company is seeing good signs in a lot of it's end markets. Energy is still a drag. Here is the CEO statement.Chairman and Chief Executive Officer Steve Angel said, “Praxair’s industrial gas businesses in Asia, Europe and South America grew volumes while benefiting from new on-site project start-ups. However, North America volumes experienced further declines due to weaker upstream energy and U.S. manufacturing activity. Globally, consumer-related end-markets remained healthy and we completed a synergistic European carbon dioxide acquisition that will further expand our food and beverage end-market exposure.“As we look to the remainder of the year, while currency translation appears to be less of a headwind at current foreign exchange rates, we do not anticipate significant underlying economic improvement in the second half. Project activity remains strong along the U.S. Gulf Coast, and we continue to expect to grow capital investments with new long-term customer supply contracts to further secure future growth. Praxair’s relentless focus on operational excellence and financial discipline will consistently deliver strong cash flow and earnings per share for our shareholders.”

So I'm sure everyone was waiting to see what Facebook would do and I saved it for last. Well they continue to crush it in all areas. FB reported Q2 EPS of $0.71 on revenues of $6.4 billion. Earnings were up 184% from last year and revenues were up 63%. Also the company is still seeing what I consider strong growth on monthly and daily active users up 15% & 17% respectively. The shares have popped to new all time highs today touching $130. Their ability to up revenues has just been amazing. Although with each quarter I'm starting to wonder if we are closer to a "disappointment". Here is the CEO statement.

Our community and business had another good quarter," said Mark Zuckerberg, Facebook founder and CEO. "We're particularly pleased with our progress in video as we move towards a world where video is at the heart of all our services."

Another week and more highs were set in stone. I guess sell in May and go away was a horrible investment strategy this summer. Good thing for us we don't believe in such nonsense to guide our investment themes. The portfolio continues to perform well, and I'm expecting it to separate itself from the index during the second half of this year.

We had the Republican Convention this week, and it looks like we finally have what everyone knew all along. You've probably been reading or hearing about the Presidential/Stock Cycle. Well I wouldn't worry about that correlation either. No matter who is President quality companies will continue to find ways to make money and increase value for shareholders. Just another piece of nonsense to throw us off our game in my opinion. Economic news continues to come in pretty good. We received another great Initial Claims for Unemployment report with 253k people. I had to look it up myself when I saw this, but this week marks the 72nd straight week claims came in below 300k. That's the longest such streak since 1973. Also another hard to believe fact is that claims are their lowest levels in 45 years!!! It's all about what you do in this economy.

Existing home sales continue to show gains. The median existing home price is up 4.8% from June 2015 to $247,700. After being a drag on the economy for so long it still appears that real estate, especially in certain areas, is kicking in a little growth to the economy. All gains however are not created equal.

We had a slew of earnings reports this week from PM, IBM, V, PYPL, and SAM.

Phillip Morris from what I'm seeing is having a great year despite the currency headwinds it's faced. The company raised guidance despite the fact they have curtailed share repurchases the last year as they struggle with cash flows(currency effects). Internationally smoking is more prevalent than it is here in the US. But I'm beginning to think the e-cig/vaping sector is going to start making some real headway in the next few years. I see it more often on the streets than I did a few years ago. I'll be interested to see what Altria and Reynolds have to say on this area. PM will also benefit from this growing trend.

IBM seems like a mouse on a wheel. They keep running faster and faster on their strategic imperatives, but can't seem to offset their legacy business declines. This is the tough part of longer term investing. Despite the fact the company is showing great progress they are still struggling in others. The stock reflects this. The recent run up has been good, but it's still a far cry from the days when it traded near $200. I'd expect it to have some choppy action as it tries to break through resistance zones.

Boston Beer had what a lot of people probably think was a bad quarter. Lower shipment volumes and market share losses all over the place. Additionally statements from Jim Koch and the CEO weren't very upbeat as they cited increased competition. Still the stock is popping as of this writing. EPS was guided lower even at $6.50-$7.00 for the year from a previous $6.50-$7.30. So why the pop? Honestly I think it's just short covering to explain some of it. The shares were taken to the woodshed the last few months. They were starting to have a nice run up, and if I were short I'd thinking this is the worst of the bad news so time to get out and protect my profits before they disappear. Shorts usually create the fuel for a change in trend. I wouldn't count them out though. This is a very well run company. They'll find ways to get consumers back to their brands even if their startup micro-brew glow isn't as strong as it used to be.

Visa had a tougher quarter to decipher since it included much of the Visa Europe transaction. Long term this is good for the company. How can that be since Europe is seemingly such a mess right now? The governments out there are moving faster to convert the economy to a more digitally based one than here in the US. The motives we won't discuss, but I know one thing is that's good for Visa. The company did announce a big $5 billion share repurchase, which makes for a $7.3 billion total authorization. Don't be to fooled by that number. As part of their Visa Europe transaction they issued preferred shares convertible into common shares currently valued at $6.1 billion. So on a net basis they are making sure they don't dilute current shareholders. EPS guidance is weak as they are expecting negative to low single digits growth for the remainder of the year. So don't expect the stock to fly out of the gates just yet. The company also announced a deeper partnership with Visa. This is good for both companies.

PayPal had a strong quarter. Revenues continue to grow at a solid clip up 15% to $2.6 billion, and EPS growth came in 7% higher. The company guided the rest of the year at $1.11-$1.14/share. The stock has a P/E of around 33 at this area. So it does trade at a premium. The portfolio isn't premium averse as you can tell with holdings such as FB, GPN, CHD, MKC, & HAIN(Surprised to see some of those names in there?). The company is still doing a great job at growing itself. The Visa partnership only makes it easier for customers to use Visa branded payment options with their PayPal accounts. It also offers customers greater real time insight to their spending. That's a plus for everyone involved.In the payment space it's inevitable that you'll need to use a competitors highway eventually. I like to make it analogous to the Comcast/Netflix internet dispute. Sometimes enemies have to work together.

If you noticed IBB had a good pop this week due to Biogen having a good earnings report which is one of the ETF's largest holdings. The ETF has struggled of late despite new highs for the market.

Tuesday, July 19, 2016

Phillip Morris International(PM) reported Q2 EPS of $1.15 on revenues down 3.1% to $6.6 billion.The company raised guidance from $4.40-4.50 to $4.45-$4.55. Surprisingly the shares were down over 3%. Maybe this will be what gives me an opportunity to buy in the low 90's again.My hope is the company continues to focus on the Reduced-Risk Products.
The company has more volatile earnings swings since the company operates
internationally, but reports domestically in dollars. This year has
been pretty wild in the currency markets. Especially in Europe, and some
parts of Asia. Here is the CEO Andre Calantzopoulos had to say. “Although our second-quarter results were generally in line with our expectations, our cigarette shipment volume was particularly impacted by declines in low-margin geographies. Nevertheless, we remain fully on track to deliver our full-year guidance, revised today for improving currency, which continues to represent a currency-neutral adjusted diluted EPS growth rate of approximately 10% to 12% versus 2015," said André Calantzopoulos, Chief Executive Officer.

"As previously communicated, we expect the growth to be skewed towards the second half of this year, and the fourth quarter in particular."

“A highlight of the quarter was our exceptional iQOS performance in Japan, whereHeatSticks reached a national share for the quarter of 2.2%, demonstrating the tremendous potential of the Reduced-Risk Products category."
IBM reported Q2 EPS of $2.61 on revenues of $20.2 billion down 3% from a year ago. The company expects full year EPS to come in at least $12.23. The shares have traded lower on the announcement, but in reality have had a pretty good run the last few months. I was really hoping for something better. It seems each quarter I'm looking for that blowout showing how well they are performing. It just seems their decline in legacy business keeps outstripping their growth in new areas. A lot of that is due to stiff competition within many of their segments. A small part of me is wondering if I should bail, but I'm still a believer in their products. Besides from a valuation perspective I'm going to be hard pressed to find a place to re-invest at reasonable price. Here is what CEO Ginni Rometty had to say. "IBM continues to establish itself as the leading cognitive solutions and cloud platform company. In doing so, IBM is pioneering new business opportunities beyond the traditional IT marketplace," said Ginni Rometty, IBM chairman, president and chief executive officer. "In the second quarter we delivered double-digit revenue growth in our strategic imperatives, driven by innovations in areas such as analytics, security, cloud video services and Watson Health, all powered by the IBM Cloud and differentiated by industry. And we continue to invest for growth with recent breakthroughs in quantum computing, Internet of Things and Blockchain solutions for the IBM Cloud."

Saturday, July 16, 2016

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. - Sir John Templeton

Well it seems everything has taken a refreshing breather after Brexit's woes.. Except for the Dow Jones and S&P 500 hitting all time highs this week. I bet if you asked many people in June we'd see new highs in July they'd have laughed. The only exception is the Nasdaq which has lagged the last year, and still a couple hundred points from it's high reached last summer. It is always interesting to see how each index acts. Time will tell what it's trying to say right now.

Now let's take a look at some economic numbers. The initial jobless claims continues to come in low at 254k new unemployment claims. When we look at the 4 week continuing claims average we can see that this number is actually below pre-recession levels. Let us not forget the strong 287k non-farm payroll number we received last week. Hiring is alive and well.

Obviously this on its own does not mean the economy is firing on all cylinders. It does however note a shift in the trend of the labor market. At this point in time it's rather obvious to me that structural unemployment is the cause for a lot of labor market angst. Yet we can see that less people are on unemployment than they were before the recession. How is that not a good thing? I'll admit I was worried the economy was heading into a recession at some points in 2015. Yet the strength has seemed to prevail. Of course an eye is always open for signals to the next downturn.

But back to some economic data. We received a slew of releases Friday. They include CPI, Retail Sales, Capacity Utilization, Industrial Production, and Consumer Sentiment. All closely watched indicators by the Fed. The Fed also released their Beige Book this week.

The Fed Beige Bookand comments basically stated that economic activity continued albeit at a modest pace. So all in same story. Economic activity is expanding, but at a slower than liked pace.

CPI is frequently mentioned by the Fed, as they watch it quite regularly. Headline inflation came in at 0.2%. A positive number, but not as strong as I think the Fed is looking for from a historical basis.

The problem with inflation is it's still coming in positive, but it's not coming in at the same rate "normally" required to raise rates if you listen to the Fed. I think inflation is low for a few reasons. One is the strong dollar causing price deflation in a few areas, and the velocity of money. I'll visit this area in a future post with more detail. But make no mistake, prices have been rising.

Retailer Sales(ex-auto) came in strong at .6% higher than May, and 2.4% from June 2015. You can read the full reporthere. Spending is still heading in the right direction, and savings have held up pretty well.

Let's look at Industrial Production and Capacity Utilization. Industrial Production has really slowed from its headier days in 2014 & 2015. Still this country is manufacturing quite a bit, and really not slowing major signs of a recession. CU on the other has rebounded for awhile, although it's sad to see the long term decline it's been in since the 1970's.

So all in not bad. Not overly strong where I'd expect 4% GDP growth, but the economy just isn't in terrible shape.

Now onto the portfolio. The week was quiet overall. No company has reported earnings this week. Although the next few weeks will see the majority of the portfolio report results.

I was tempted to add PYPL when it was around $35. It wasn't exactly on my radar to add, but I think I missed a good opportunity there. I'll look to see if I can get another shot around $37. IBM has moved up nicely too. Big Blue has take awhile to turn around, and I think these next two quarters will be pivotal to see where they are in this transition.

Besides the recent additions of EMR, and VGR there is not a lot going on. Things will really get exciting soon so I'm not worried. There have been of course a few upgrades and downgrades that have crossed my screen. What has it meant? Absolutely nothing. The stocks continue to perform, and make us money each and everyday.

Enjoy the weekend. Don't get to complacent. You never know when a little volatility will be right around the corner!

Monday, July 11, 2016

The S&P 500 officially closed at an all time high today settling at 2,137.16. Coincidentally the new all time intra-day high is 6 points higher at 2,143.16. I bet many people weren't expecting new highs in the market with all the negativity going around, and the recent Brexit vote. This seems to be the most hated stock market of all time.

Oddly enough if you bought at the June 27(post brexit) low of 1,991 you'd be up 7.3% for the year handily beating the S&P's 4.6% YTD gain. Just goes to show how range bound we actually have been despite all the ups and downs. It even illustrates how tough it is to time the market. My guess is most people would not have been able to push the buy button that day. One more point is that many times most of the gains come in a short period. The rest of the time the market inches up like a snail.

Thursday, July 7, 2016

Big news today for our portfolio. Danone has offered to buy WhiteWave Foods for $56.25/share. The shares have actually traded above the buyout price all morning which shows traders and investors believe the company is worth just a bit more. Usually the shares trade right up to the buyout price.

I'm happy to see one of the picks being bought out. It means the company was bringing great value, and innovation to it's customers. It also means the company is well run. I'm actually a bit sad I won't have the shares anymore. I have owned shares in this company since 2014. I was a huge believer in it's mission, and I thoroughly enjoy many of their brands.

Oddly enough I had been casually looking over Danone's business as I'm trying to find some good names at attractive prices. I mentioned in the portfolio review that European names are some of the few areas I'm seeing attractive valuations. I tend to like defensive names and Danone was fitting the bill. I'll have to keep an eye on the shares just a bit more now as I'd like to keep myself invested in the "healthier for you" food business.

WhiteWave was trading at a premium to begin with and the buyout offer definitely is a bigger premium. I think in 5 years that will look like a pittance to pay. the company has been growing sales at a phenomenal clip the last few years with no signs of slowing down. This will be a nice boost for Danone who will now have more sales in dollars translated into what seems to be continuously weaker Euro's.

Hain Celestial is also trading higher today in sympathy. Hain has also been rumored to be a takeover target in recent years.

Tuesday, July 5, 2016

Well it's hard to believe the first half of 2016 is over. It seems to have flown by with plenty of excitement. We've made it through a few "No Rate Hikes", and the "Brexit" vote. Not to mention a seemingly endless stream of bad news regarding terrorists, ISIS, and sadly other mass shootings.

Yet the The Long Haul Portfolio marches on. I was pretty amped up to determine how well the portfolio had performed. Well that energy has turned into some happiness as I am pleased to announce the portfolio has returned 6.85% compared to a 6.72% gain in the SPY index ETF since I started this in October 2015. I use the SPY since it is the most widely held ETF that follows the S&P 500 index, and it's what most investors use to mimic the index performance. You can find the portfolio spreadsheet by clicking on the right hand side link. It's a Google sheet so you will likely need an account to view it.

A few things I'm left wondering. I wonder how the portfolio would have performed if I had started with only my new adds, instead of the holdings I currently had. There are a few picks that I haven't added to at all since I started this. Some that come to mind are Facebook and Procter & Gamble. Then there are a few picks I wish I had added more too including Altria, McCormick, and the other tobacco names. Alas time will tell if I am making the right choices. So far it looks like I still am.

The portfolio's lead over SPY has narrowed from Q1 when it was 4.81% vs 4.30%. Either way the lead is still intact. Here are the notable performers, and slackers I've noticed.

As a whole the tobacco picks are performing very well. In fact MO is the 2nd best performer I have. Out of the top 7 stocks 4 are tobacco names being MO, PM, BTI, and RAI. Even new addition UVV is performing well and is up 6%. VGR has been slacking of late, but I'm still seeing a positive return on this one.

McCormick, Church & Dwight, Procter & Gamble, Facebook, and Global Payments round out the other top performers. MKC is tops with a 30% gain so far. With the exception of GPN, and FB the other names are all defensive in nature which just goes to show where investors have been putting their money overall.

Some notable slackers are Wabtec, Samuel Adams, Cognizant, and HCP. I'm disappointed each obviously. I'm disappointed in WAB the most as it was such a solid performer for years, but is now taking a break. My SAM additions seem to have been ill timed. The company still has a great balance sheet so I'm willing to wait this one out for awhile. Additionally the company continues to buy back shares, although it makes me wonder why they can't find other opportunities for their cash. HCP has been running into legal issues, and then announced a split of it's ManorCare assets. I'm happy to see that. It will allow management to focus on more lucrative opportunities. Although I'll be left deciding to keep the new shares or sell them. CTSH has been in the doldrums despit having great results. This stock seems to move in fits. So when the next uptrend starts I'm expecting it to be pretty quick. I should note that of these picks neither were really cheap during any of the adds. Just goes to prove that overpaying does no justice.

I calculated the returns of each pick YTD through June 30. I was surprised to see CMI leading the pack this year as it rallied all the way from the 80's to over $110. I'm still kicking myself for not adding at that price. The same goes for Altria when I canceled my order to by shares under $60. Making me look pretty foolish right now. Some other top performers are WWAV and HAIN. I admitted to being nervous when I made some adds on both. It looks like that was unwarranted as they have really come back strong throughout the year. WWAV especially looks like I timed pretty good back in April.

One thing I did notice was how well BUD, DEO, and BTI held up during the Brexit vote. I can definitely see why investors would want to seek these stalwart names. I was really hoping Diageo would come down below $100/share. It never happened but if it does in the next few months I'll make sure to buy. I'm just glad I was able to get the shares a bit cheaper when I did add.

A few stocks I really want to add more to are GPN, PG, MKC, UVV, and CHD. Actually the rest of the tobacco names I wouldn't mind either. Also I'm still keeping my eyes out on some new names that I'd like to add. Although with the list approaching 30 names I'm trying to be very selective. Nothing seems really overpriced although the case can be made for some. It just seems that everything is trading with enough premium to deter me from adding. It's been especially hard to find good value right now except for European stocks.

That's all for now. Hope everyone had a great weekend. Can't wait for another quarter to be in the books!

Saturday, July 2, 2016

We accomplished two things this week. One was we made it through "BREXIT" alive with some surprising results. Second is we finished off the first half of the year into a wonderfully long 4th of July weekend. I couldn't think of a better time for some well earned relaxation, and an adult beverage with amazing family and friends.

Let's get started with the aftermath of the Brexit vote. Initially all hell was breaking loose in Europe, and then in the US financial markets. The pound has slipped to decade long lows, and many are citing this as the demise of the country. Not so fast people.

Judging by the stock markets of Britain, France, and Germany it's the Brit's who have come out ahead since the vote last Friday. If we are to believe the efficient market theory then it clearly shows that participants are currently betting Britain will be the winner. The best part is Britain's market is outperforming by a wide margin of 6% + against each country's benchmark. I'm willing to think this was not the outcome most people were expecting no matter which vote won. It seems most people were preparing for 20% crash or more.

Now that one comparison alone is not foretelling of the future FYI. We must watch how this entire ordeal unfolds over the next few years. My personal view is this will be better for Britain, and bad for the EU especially if other countries follow. It might take up to 5 years or more to see how this really pans out

Now onto some more US focused news. We received a lot of economic data this week. First was the third revision to Q1 GDP coming in at 1.1%. That's up from the initial 0.5% projection so a plus there.

Then we received some housing data. We saw a 5.4% YoY rise in the Case-Shiller 20 city index. While good the number seems to be decelerating, and there were 3 cities showing small declines on a seasonally adjusted basis. We then got hit with a decrease in MBA Mortgage Index showing a -2.6% decline despite mortgage rates back near historic lows. Additionally pending home sales came in at 110.8, or 3.7% lower than April's(115.0), and 0.2% lower than May 2015. Let's see if some of this is temporary. The housing market as a whole has been holding up better than most people(including me) have thought it would this year.

It appears there are some supply/demand issues in some markets. Also in the Case-Shiller reading it was noted many areas have not hit their pre-recession peaks. The recovery has been uneven on all levels, and real estate is not immune.

We did receive a nice reading in the ISM Index at 53.2. Sadly the Federal Reserve is no longer supporting the ISM data series so I won't be posting this info from FRED.

There was the personal spending, income, and savings report too. Income growth was OK at 0.2% increase, while spending rose 0.5%. So that leave savings and with numbers like that we can expect a decrease, which we saw. The annualized savings rate for Americans came to 5.3% for May which is down 0.1%. Believe it or not the savings rate has been trending higher nationally since 2013.

I'm a big proponent of saving money. Why? The more you save the more you get to invest!!! It's a combination I absolutely love, and you should too. You don't get rich by spending your money. You get rich by investing your money.

One note is that the the markets basically registered their entire gain for the year this week. Just check out the numbers below. Despite so much up and downs, we really haven't traded out of the long range we've been in since 2014. But we are excruciatingly close it seems to making a break one way or the other.

Index

Started Week

Ended Week

Change

% Change

YTD %

DJIA

17400.75

17949.37

548.62

3.2

3.0

Nasdaq

4707.98

4862.57

154.59

3.3

-2.9

S&P 500

2037.41

2102.95

65.54

3.2

2.9

Russell 2000

1127.54

1156.90

29.36

2.6

1.8

Onto the portfolio stocks. MKC reported earnings this week. They reported another solid quarter showing how well run, and how much more immune they are to the swings in the economy. Sure currency swings take a bite out of earnings sometimes such as right now. But people are still going to buy the spices, flavoring, and other seasonings this company sells. I think their recent move into fresh herbs is pretty savvy. McCormick is going to be a big winner for us this quarter(portfolio results out soon!!!).

During the week I added more to Emerson Electric. I stated before I wanted the shares below $50. I had once chance that lasted only a day and didn't get far enough. This time I was lucky enough it went all the way down to below $49. I had set my buy at $48.99, but the stock actually made its way down to the 200 SMA. I'm finding comfort in high quality that's for sure

EMR is one of the last few high quality names I see yielding more than 3%, and for that matter even more than 3.5%. CMI & IBM are the only other two blue chips I follow where I see a yield over 3.5%. The odd things is none of the other stocks out there really seem in bubble territory. However good names continue to trade for a premium, and I'm expecting that to continue.

This only means I'll have to keep my head on a swivel to notice the
bargains when they materialize since other investors are quick to snap
up the shares while they can too.

Visa & MasterCard both received some bad news. Apparently a previous class-action lawsuit settled for $5.7 billion was thrown out by a judge. There was the initial sell-off, but yesterday they seemed to hold their ground. I'm not overly concerned about an impact. The money would have already been accounted for and put into reserves long ago. Even if another 2-3 billion is added both are able to handle that type of financial hit, and it will only be a temporary factor in the long term story of these two companies.

Disclaimer

The website is not offering financial advice and information is provided on an educational basis only. The editor does not make any guarantee or promise to any results that may be obtained from using this website. Investing involves substantial risk, which may include the loss of principal. To the maximum extent permitted by law the editor disclaims any and all liability in the event any information, commentary, opinions, analysis, advice, and/or recommendations on the website prove to be unreliable, incomplete, inaccurate, or result in investment losses. While past performance may be analyzed on this website, it is not indicative of future performance. You should consult your own financial advisor and/or perform your own due diligence, research, and analysis of prospectus and other public filings before making investment decisions. The website uses information believed to be correct at the time of writing, which may or may not be accurate. The editor has not independently verified or otherwise investigated all such information available, and therefore cannot guarantee the accuracy or completeness of any such information. The website is not a solicitation to buy or sell securities. The information provided on the website is not to be interpreted as a suggestion to buy or sell securities. We are not liable for any losses suffered by any party because of information published on the website. Full disclosure: All stocks listed in The Long Haul Portfolio are held in the editors personal portfolio.